When people participate in financial systems, they’re better able to start and expand businesses, invest in education, manage risk, and absorb financial shocks. This is raised by the Global Findex Database in a report on measuring financial inclusion around the world. But today, there are at least two billion adults worldwide, the ‘unbanked’, who are still without access to formal financial services. Financial technology could open up more opportunities to support the financially excluded.
Tech can boost financial inclusion
Blockchain technology, which drives cryptocurrencies and other useful purposes, could provide a solution for financial exclusion. A blockchain is a digitised, distributed public database that maintains a growing list of ordered records called ‘blocks’. It’s like a giant, global spreadsheet that runs on lots of computers. These are recorded and added in chronological order, allowing all participants to keep track of all digital peer-to-peer transactions without the need of a central authority. This decentralised ledger can exist everywhere in any amount of machines. It’s transparent and virtually impossible to forge.
Blockchain technology can simplify complex processes and facilitate verification and record-keeping. From securing patient medical records to preventing voter fraud in elections to rebuilding public trust in charities, blockchain technology is about more than just cryptocurrency and has the potential to make an enormous impact in developing countries. Blockchain can help with:
- Forming an economic and digital identity with enhanced privacy and security of personal information
- Onboarding customers to banks when much-needed documentation is sometimes difficult to provide
- Making aid disbursement more secure and transparent
- Securing property rights
- Facilitating faster and cheaper international payments, often simply through a mobile phone
Blockchain and cryptocurrencies are already making an impact
As Zimbabwe goes through political and economic turmoil, the cryptocurrency bitcoin has offered people protection from the onset of hyperinflation and financial implosion. As many were unable to send money outside or pay for international transactions using formal banks, bitcoin provided a relatively stable alternative.
Venezuela is on the verge of hyperinflation and is struggling with US-led financial sanctions. Amidst many Venezuelans already turning to bitcoin as an alternative, President Nicolás Maduro announced a new digital currency to address the collapse of the country’s economy. According to Maduro, the ‘petro’ cryptocurrency would help Venezuela to “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade”.
The global remittances industry, of immigrants sending money home to their families and friends, is a $400 billion business. In the Philippines where it’s particularly lucrative, cryptocurrency startups such as Coins.ph and Toast use blockchain technology to allow users to pay bills, make purchases and send remittances, often at much lower fees than what is charged by traditional banks.
The Bill & Melinda Gates Foundation recently released a new open-source software for creating payment platforms that will help unbanked people around the world access digital financial services. The new code should reduce the complexity and cost of building payment platforms that connect poor customers to merchants, banks, mobile money providers and governments.
The United Nations World Food Programme (WFP) is deploying blockchain technology to make cash-based transfers faster, cheaper and more secure for Syrian refugees. Refugees in Jordan’s Azraq camp can pay for their food by means of entitlements recorded on a blockchain-based computing platform.
But there remain causes for concern
Some issues need to be addressed if blockchain technology is to make a long term positive impact for developing countries, those in poverty and the financially excluded.
- The viability of cryptocurrencies is questionable in countries with poor technology infrastructure. Governments can do their part to lay a foundation for blockchain with reliable energy access and access to smartphones and internet
- Blockchain-based solutions need the support of a legal and regulatory environment, without which widespread adoption is not possible. Technology organisations will have to work closely with government agencies and financial regulators on this
- Blockchain solutions demand what could be a major overhaul or replacement of existing systems. Financial institutions must create strong, organised plans to manage these transitions smoothly
- The public will need assurance before they entrust their personal data to a blockchain solution, and a major shift to a decentralised network requires significant buy-in from a variety of parties. Education and honest dialogue around the use of blockchain’s benefits and limitations need to be taken up at every opportunity
In my previous blog post on Africa’s medical drone delivery schemes, I touched on the consequences of ‘leapfrogging’. Although advances in technology can help developing countries to catch up and overcome many of their longest-standing problems, often these solutions mean little in the bigger picture of progress if the country is lacking the most basic services. Governments have a huge role in this, and it’s one place where technology and politics intersect.
A similar point can be made here. Focusing on short term trends such as the ‘blockchain’ buzzword or the bitcoin boom must not distract governments, financial institutions and other organisations from larger scale, comprehensive efforts to strengthen fragile financial institutions and infrastructures.
Blockchain technology seems promising for social progress in ways that even the advent of the Internet, the smartphone or social media couldn’t be. But its proposed solutions are neither an easy fix for longstanding societal problems, nor yet completely proven to succeed in the long term – before blockchain can truly help the poor, both developing and developed countries need to work out exactly how it can be used and put forward practical, real-world and mainstream applications. Time will tell what the future holds for blockchain.
What is clear is the importance of digital inclusion: the emergence of blockchain points to the promising vision of expanding poor people’s access to financial services through digital, connecting and enabling them to become participants in the wider global economy.
Photo by Mike Alonzo on Unsplash
Technology Tree 